Stranger Things

Stocks were mostly weaker, led by the S&P 500 and the Nasdaq 100 which were both down about -0.8 % on the week (SPX, NDX).

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Several things are looming over the market… like the debt ceiling needing to be raised, which is no sure thing considering the bickering on Capitol Hill.

Another longer-term issue that was revealed this week is that members of the Federal Reserve have potentially been trading their stock portfolios ahead of major policy decisions.

Although not illegal currently, it could dent the Feds sacred credibility which is crucial to the stability of the markets, the economy, the dollar, and the United States in general. Does this make decentralized digital currencies look like a serious replacement for fiat currencies and even Gold?

Possibly, as a result of all the political chaos, markets behaved in some unusual ways, diverging from classical patterns we’d expect to see during a selloff.

First, Utilities underperformed stocks on weakness.

Next on the list of weirdness is that High Yield Debt (AKA… Junk Bonds) outperformed US Long Bonds, with Junk debt flirting with multi-year highs.

We are watching the 210 level in IWM (Grandpa Russell /Small Caps) as a line in the sand to hold and keep the long-term bull trend in equities intact.

This week’s market highlights

  • Risk Gauges moved back down to neutral readings with this week’s selloff
  • The traditional flight to safety is to switch from stocks and high-yield debt into US Treasury Bonds and Utilities did not occur
  • SPY was down 1.54% on Friday, closing beneath the 50-DMA for the first time since June 18th
  • SPY and DIA on both price and Real Motion starting to get frothy on the downside
  • Market internals remain weak across the board
  • The Hindenburg Omen indicator has increased to its highest level since last March
  • IWM bounced off oversold levels, closing above both its 50 & 200-DMA’s, back into bullish mode
  • This week saw some of the worst volume patterns since March of 2020, with only 1 accumulation day in each of the major indices over the past two weeks indicating major institutional selling
  • Growth (VUG) continues to outperform Value (VTV)
  • High-Yield Debt (HYG) should be underperforming bonds (TLT) during a selloff, however, HYG outperformed TLT on the week and moved into a buy signal on a relative basis
  • Volatility (VXX) is at the upper end of its trading range that was established in June
  • Transportation (IYT) is in a distribution phase, while Retail (XRT) bounced off oversold conditions and stopped at its 50-DMA
  • Biotech (IBB) has good volume and held its ground above the 10 & 50-DMA’s
  • Energy (XLE), Consumer Discretionary (XLY), and Retail were the only sectors with a positive performance this week
  • Technology (XLK) and Semiconductors (SMH) were down on the week, but less than the indices
  • Gold (GLD) broke down hard and is now in a bearish phase partly due to strength in the US Dollar (UUP)
  • Bonds got overbought on both price and momentum last week and is now back to testing its 10 & 50-DMA’s
  • Sloppy market action is partly the result of Triple-Witching today
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